Health Care Innovation: Medicaid, State Health Reform, and Diffusion of Innovation Among States

When it comes to innovation in health coverage, finance, and purchasing, states are the most likely innovators. The role states can play as laboratories of reform is a key advantage of our Federalist system of government. Right now, as many states find themselves in a strong fiscal condition, states are taking the lead in expanding health coverage, reforming market dynamics, and transforming Medicaid.

As with any kind innovation, states play different roles and vary in their ability and interest in adopting a particular innovation in coverage, financing, or care delivery. Some states will play the role of genuine innovators, while others will follow the leaders. Still others will take their time and a few will lag well behind the field.

You can see this play out in Medicaid managed care, where a few states like Wisconsin, Arizona, and Minnesota are serial innovators. Several other states follow their lead fairly quickly. And a few states, notably states like Mississippi, Illinois, and Alabama, tend to lag well behind the country.

Studies on the diffusion of innovation may be helpful to businesses, wonks, advocates, and others as they try to understand, navigate, influence, and ultimately take advantage of state health reforms.

Experts in the diffusion of innovation say that adopters of any particular new idea or approach can be reliably categorized into five groups:

Innovators: About 2.5% of players (individuals, businesses, or, in our context here, states) are the true innovators. They tend to be adventurous, open to new ideas, decisive, willing to take risks, highly educated, well versed in best practices, and connected to best sources of information.

Early Adopters: Studies say that early adopters are about 13.5% of a market. They are typically popular among their peers, smart, well educated. They are less creative, less venturesome than the innovators but are fairly decisive and like to ride the leading edge, gaining what they can from advances.

Early Majority: About 34% are deliberate in assessing a new idea. They take their time, prefer others to take the lead in advancing business or policy, and are more informally connected to thought leaders and mavens.

Late Majority: Late Majority players, also about 34% of population, are skeptics and traditionalists. With fewer resources, less internal expertise, and more moderate education, they are risk adverse, rather indecisive, and extremely cautious in adopting, implementing, and evaluating new ideas.

Laggards: About 16% are true laggards, often in every sense of the word. They are highly risk adverse, isolated from best practices and their peers, and conservative by instinct. They are often not so much indecisive as they are indifferent or nonplused by decision making.

Applying this to the world of states and health reform, we are likely to see about 3 states playing role as genuine innovators and another 7 states as quick adopters. Another 34 states will take more time, either in adopting an innovation as policy or in implementing it locally. Finally, about 8 states will likely do little or nothing. Of course, a state that is an innovator in one policy domain – like managed care – may be a follower in some other area like coverage expansion. And we should not underestimate the impact of leadership – a new governor or new Medicaid director – on moving a state from late player to innovator.

If you are a business interested in new opportunities created by state health reforms or a trade group or advocate interested in influencing state health policies, you need to know which states are the innovators or early adopters and which are the late players or laggards. Even if you are not interested in an innovator state’s local market, you need to understand that state’s role in influencing what other states will do. Working closely with the innovators and early adopters can generate invaluable market intelligence and lead to unique, powerful position as reforms move across the country.

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The Piper Report blog on healthcare business and policy covers issues in Medicaid, Medicare, and the Affordable Care Act, with articles, interviews, resources, primers, book reviews, and more. Edited by Kip Piper, CEO of Medonomics.